Time to cool off

Have you ever awoken the morning after signing a contract for something – a gym membership, a car, a new phone plan, or a house – and thought “Oh, no! What have I done?” Well, it may not be the end of the world. If the contract contains a cooling-off period, you probably have a way out of it.

A chance to reconsider

A cooling-off period is simply a period of time after you’ve entered into a contract in which you can change your mind and cancel the agreement. In some cases it is a protection against pushy and deceptive sales tactics; in other cases it can protect us from our more impulsive selves.

With consumer contracts such as electricity and phone plans, gym memberships and the like, a typical cooling-off period is 14 days. In other sectors it can be shorter or longer and vary from state to state, so whenever you are entering into a contract check if there is a cooling-off period and its details.

Understanding this option is particularly important when entering into contracts related to building or protecting your wealth, such as buying a property, making an investment or taking out insurance.

Property

In most states, cooling-off periods apply when property is sold in a private sale. They do not apply to auction contracts, but may if the vendor and purchaser negotiate a contract after an unsuccessful auction.

The durations for property purchases vary between states, with some offering none and up to five business days in others. Always check first with your solicitor to ensure you know what applies to your purchase.

Managed Investment Products

Most managed investment products provide retail investors with a 14-day cooling-off period. However, it is important to understand that this does not provide protection against moves in investment markets. For example, if you invest in a share fund today and the market suffers a big drop tomorrow, you will only get back the value of the investment at the time the redemption is made. On the other hand, if the market jumps, you will benefit from that rise. The manager may also retain reasonable transaction costs.

Cooling-off periods do not apply to investment products that are listed, or will be listed shortly after issue, on a securities exchange. Full details will be contained in the Product Disclosure Statement.

Insurance

For general insurance the cooling-off period is 14 days. In the case of life insurance products it generally varies from 14-30 days, depending on the insurer.

The value of good advice

Cooling-off periods provide investors and consumers with some important protections. However, cancelling a contract can be an inconvenience, and there may be some cost involved.

A good adviser will take the time to understand your needs, only recommend products that are appropriate for you, and will explain everything to help you to make a sound decision. Having a clear focus backed by good advice will make sure that the only thought on your mind first thing in the morning is a hearty breakfast


Cameron opens Pandora’s Box

David Cameron’s decision to invite the British people to vote on membership of the EU has, without doubt, blown up in his face and has opened Pandora’s box. In Greek mythology, Pandora opened the box and released all the evils into the world leaving only hope when she closed it again. Today this expression describes a small act unleashing unimagined consequences and this is where the UK, Europe and indeed the world are now situated.

Since Friday we have been bombarded with opinion pieces seeking to tell us what “Brexit” will mean. But the simple truth is … Nobody Knows. Will the Scots veto it – apparently they can? Will the UK parliament ignore the referendum – legally they can? Will the petition currently being promoted gain sufficient momentum to force parliament to call a second referendum? … Nobody Knows.

If Brexit does indeed proceed, will it happen quickly as the Europeans want or will it go slowly as Boris Johnson undoubtedly wants. Indeed how will it proceed and what will the final version look like? … Nobody Knows.

So where does this leave us? Firstly it is important to remember that very little has actually changed. The world’s economies carry on and indeed there were some quite encouraging numbers out of Germany and France last week. Probably the only effect to the real economy is the impact of uncertainty on currencies and in particular the UK pound which has fallen significantly against all major currencies. The real impact of this, if it continues will be to make British exports much cheaper. The greatest impact is from uncertainty.

Uncertainty will cause businesses and governments to think twice about capital spending. For us, most significantly, uncertainty affects investment markets. We have seen share prices fall on Friday though the US S&P 500 has only retraced to where it was 5 weeks ago and the ASX200 is back to where it was in late April. We will see volatility over the next few weeks and months and we shouldn’t forget that we have an election this week and the US has one in November. Uncertainty and volatility in asset prices will be with us for some time.

As investors you need to focus on fundamentals – both in economies and markets. If you are in the income phase you should focus on the underlying strength of assets you own. If you are in the accumulation phase uncertainty may give you some buying opportunities.

The tragedy for all of us is that politicians all over the world are failing to show real leadership which gives the populists scope to ramp up their empty rhetoric which in turn leads to situations like Brexit.

Finally, because we probably need cheering up, here is a clip from a 1980 episode of the British TV series “Yes Minister” – Life imitates Art!


Budget Review 2016

The Budget 2016/17

The Federal Treasurer, Scott Morrison handed down his 1st budget for 2016/2017.  The Budget sets out the government’s economic plan for Australia’s transition from its reliance on the declining mining boom to a new economy that is stronger and more diversified.  It plans to do this by introducing a 10 year tax plan, fixing the current taxation system, by controlling spending and ensuring the government lives within its means.

Please find below the main highlights of the changes.

Superannuation
Superannuation is ‘to provide income in retirement to supplement the Age Pension’ and this will look to be enshrined in legislation.  The new measures are intended to support this objective.
Below is a detailed summary of the superannuation changes. Please refer to the Appendix for a simple explanation.

Div 293 income tax threshold reduced
The point at which individuals pay additional 15% contributions tax (total of 30%) will be lowered from $300,000 from $250,000 from 1 July 2017.  The annual cap on concessional contributions will also be reduced from $30,000 for under age 50 and $35,000 for ages 50 and above, to $25,000.

The government will also introduce ‘notional’ (estimated) and actual contributions for members of unfunded defined benefit schemes and constitutionally protected funds.  Members of these funds will now be able to salary sacrifice just like members of accumulation funds. For individuals who were members of a funded defined benefit scheme as at 12 May 2009, the existing grandfathering arrangements will continue.

Superannuation income streams earnings exemptions removed
The tax exemption of assets in ‘transition to retirement’ income streams (will be removed from 1 July 2017), ie pensions of persons of retirement age but not retired individuals.  The rule that allows some superannuation pension payments as lump sums will also be removed.  This will ensure that the strategy still remains fit for purpose and not focussed on the tax advantage so that they remain in the workforce.
Lifetime cap for non-concessional superannuation contributions
A lifetime non-concessional cap will replace the existing annual caps of $180,000 each year or $540,000 every 3 years for individuals under 65.  The new lifetime non concessional cap will apply from 7:30 (AEST) on 3 May 2016 and will be an amount of $500,000.  It will take into account all non-concessional contributions made on or after 1 July 2017 (from the time the ATO has record of it).  Excess contributions will need to be removed or they will be subject to a penalty tax. Non concessional contributions made before this date cannot result in an excess amount.

After-tax contributions made into defined benefit funds and constitutional protected funds will be counted towards their lifetime non concessional caps.  If a member exceeds their lifetime cap, ongoing contributions to the defined benefits account can continue but the member have to ensure they are removed on an annual basis. An equivalent amount (including proxy earnings) from any accumulation account they hold.

The amount that could be removed from any accumulation accounts will be limited to the amount of non-concessional contributions made into those accounts since 1 July 2007. Contributions made to a defined benefits account will not be required to be removed.

The measure which will be available to all Australians up to age 74 will provide support for the majority of Australians who make non-concessional contributions well below $500,000 and flexibility around when they choose to contribute to their superannuation.

Does this sound confusing? We understand. Please contact us if you would like to discuss how this affects you.

Contribution rules for people 65 -74
The current minimum work requirements for Australians aged 65 to 74 who want to make voluntary superannuation contributions will be removed from 1 July 2017.  Individuals under 75 will no longer have to satisfy a work test and will be able to make voluntary contributions and receive contributions from their spouse.  The measure will allow people aged 65 to 74 to increase their retirement savings, especially from sources that may not have been available to them before retirement, including from downsizing their home.

Catch-up concessional superannuation contributions
From 1 July 2017, individuals with a superannuation balance less than $500,000 will be allowed to make additional concessional contributions where they have not reached their concessional contributions cap in previous years.  Unused amounts are carried forward on a rolling basis for five consecutive years only if accrued from 1 July 2017.

Tax deductions for personal contributions
Individuals up to age 75 will be able to claim an income tax deduction for personal superannuation contributions from 1 July 2017.  This will apply regardless of employment status (i.e., wholly employed, self-employed or a partially employed/self-employed.  However, individuals that are members of certain prescribed funds would not be entitled to deduct contributions to those schemes. Prescribed funds will include all untaxed funds, all commonwealth defined benefits schemes, and any state, territory or corporate defined benefits schemes that choose to be prescribed.

Low Income Superannuation Tax Offset
A Low Income Superannuation Tax Offset (LISTO) will apply to reduce tax on superannuation
contributions for low-income earners from 1 July 2017.  This offset will be a non-refundable tax offset to superannuation funds, based on the tax paid on concessional contributions made on behalf of low income earners. The offset is capped at $500 and will apply to members with adjusted taxable income up to $37,000.  The measure will effectively avoid the situation in which low income earners would pay more tax on savings placed into superannuation than on income earned outside of superannuation.

Low income spouse tax offset threshold increased
The Government will increase access to the low-income spouse tax offset from 1 July 2017 – which provides up to $540 per annum for the contributing spouse – will apply where the low-income spouse’s income is up to $37,000 (increased from the current $10,800).

1.6 million superannuation transfer balance cap
A balance cap of $1.6m on the total amount of accumulated superannuation an individual can transfer into the tax-free retirement phase will be introduced from 1 July 2017. Subsequent earnings on these balances will not be restricted. This will limit the extent to which the tax-free benefits of retirement phase accounts can be used by high wealth individuals.  A tax will apply to the extent amounts transferred exceed the $1.6 million cap (including earnings on these excess transferred amounts) and may be converted to superannuation accumulation phase accounts.  Changes to tax arrangements for pension amounts over $100,000, from defined benefit schemes from 1 July 2017 will ensure similar treatment for those schemes.

Anti-detriment death benefit provision removed
The anti-detriment payment (which, broadly speaking, compensates certain beneficiaries of
superannuation benefits paid because of the death of a member, for the effect of tax on contributions) will be abolished from 1 July 2017.

Personal Income Tax
Personal tax rates for 2016-17
The threshold of the 37% marginal tax rate for individuals will increase from $80,000 to $87,000 from 1 July 2016. This measure reduces the marginal income tax rate on incomes between $80,000 and $87,000 from 37% to 32.5%.

Taxable income Tax on this income
0 – $18,200 Nil
$18,201 – $37,000 19c for each $1 over $18,200
$37,001 – $87,000 $3,572 plus 32.5c for each $1 over $37,000
$87,001 – $180,000 $19,822 plus 37c for each $1 over $87,000
$180,001 and over $54,232 plus 45c for each $1 over $180,000

Medicare Levy low-income threshold for families
For the 2015-16 income year, the Medicare low-income threshold for singles will be increased to $21,335 (up from $20,896).  For couples with no children, the threshold will be increased to $36,001 (up from $35,261) and the additional amount for each dependent child or student will be increased to $3,306 (up from $3,238).

For single seniors and pensioners, the threshold will be increased to $33,378 (up from $33,044). For senior and pensioners couples with no children, the threshold will be increased to $46,966 (up from $46,000) and the additional amount for each dependent child or student will be increased to $3,306.

Medicare Levy low-income threshold for families
The indexation of the income thresholds for the Medicare Levy Surcharge and Private Health Insurance Rebate will continue to be paused for a further three years from 1 July 2018

Small Business
Small business entity turnover threshold
(From 1 July 2016), the small business entity turnover threshold will be increased from $2 million to $10 million. However, the increased $10 million threshold will not be applicable for accessing the small business capital gains tax concessions. These concessions will only be available for small businesses earning less than $2 million, and to the unincorporated small business tax discount will be limited to entities with turnover less than $5 million.

Unincorporated small business tax discount
The tax discount for unincorporated small business entity will increase in phases over 10 years from 5% to 16%. The tax discount will increase to 8% on 1 July 2016, remain constant at 8% for eight years, then will increase to 10% in 2024-25, 13% in 2025-26 and reach a new permanent discount of 16% in 2026-27.

Company tax rate
The company tax rate will reduce to 25% over 10 years. From 2016-17 income year, the tax rate for business will an annual aggregated turnover of less than $10 million will be 27.5%. The threshold will then be progressively increased such that all companies are taxed at 27.5% in the 2023-24 income year.

Social Security and Family Payments
Work for the Dole
From 1 October 2016, the most job ready seekers will enter the Work for the Dole phase after 12 months participating in jobactive, rather than the current six months.

Jobs for Families Package
Child Care Subsidy, Additional Child Care Subsidy and Community Child Care Fund will now apply 1 July 2018, (rather than the previously announced 1 July 2017). Child care fee assistance will continue to be provided under the Child Care Benefit, Child Care Rebate, Jobs, Education and Training Child Care Fee Assistance, Community Support Program and Budget Based Funded Program until 30 June 2018.
The Interim Home Based Carer Subsidy Pilot Programme (Nanny Pilot Programme), which commenced on 1
January 2016 and subsidises care provided by a nanny in a child’s home, will also be extended for six months to 30 June 2018. The hourly fee cap will be increased from $7 to $10 from 1 June 2016. The cost of this increase will be met from within the existing resources allocated to the programme.

Aged Care
My Aged Care – Consumer access
The Government will provide $136.6 million over four years from 2016-17 to support the operation of the My Aged Care contact centre. The funding will assist the contact centre to meet the significant increase in demand for assistance from customers interacting with the aged care system.